The upcoming week is set to be busier relative to the past one in terms of economic releases, featuring among others what is arguably the most significant release out of the US since the global financial crisis, namely the country’s jobs report. Eurozone preliminary inflation figures for March is another data set that will be closely watched by market participants, while the Reserve Bank of Australia will be holding a meeting on monetary policy.
RBA set to remain on hold amid trade uncertainties
The Reserve Bank of Australia is widely anticipated to maintain its policy rate at the record low of 1.5% when it completes its meeting on monetary policy on Tuesday; the rate decision is due at 0430 GMT. Not a lot has happened domestically in Australia since the Reserve Bank last met in early March. Even though GDP data for Q4 disappointed, the nation’s trade balance returned to a surplus in January. Meanwhile, the unemployment rate ticked up in February, but that was probably owed to more people entering the labour market, as the labor force participation rose as well. Thus, economic data alone suggest there is little need for the RBA to change its neutral tone upon completion of its meeting.
That said, global developments have not been as benign. The risk of increased protectionism on a global scale has risen significantly, and if such risks materialise, Australia would be one of the most vulnerable economies given its reliance on commodity exports. Overall, there appear to be more reasons for the RBA to be on the cautious side of the spectrum next week, as opposed to appearing optimistic. Policymakers could highlight the recent risks and reaffirm that rates are likely to remain on hold in the foreseeable future, a view that markets share; Australia’s overnight index swaps now suggest a mere 23% probability for a 25bps rate hike by year-end, down from 60% back in early January.
Other potential market-moving releases out of Australia are Wednesday’s building approvals and retail sales and Thursday’s goods and services trade balance, all for the month of February.
Turning to New Zealand, the bi-weekly milk auction is on the agenda on Tuesday and might spur some movements in Kiwi pairs, given New Zealand’s status as a top dairy exporter; higher prices are likely to support the local dollar and vice versa.
The Aussie and the Kiwi dollars have come under pressure versus their US counterpart in Q1 2018, losing 1.5% and 2.0% just before the quarter-end. Increasing chances for a global trade war were seen as one of the factors behind their retreat. In the case of Aussie/Dollar, bears are currently focusing on a long-term trendline stretching back to early 2016 that seems to indicate a line of support around the $0.7600-10 area. A downside violation of this range is seen as opening the way for steeper declines.
At 11:50 GMT on Sunday, the Bank of Japan will release its Tankan business survey for Q1. Looking at forecasts, there is a rift between large and small companies. While the indices relating to large manufacturing and non-manufacturing firms are all expected to rise or stay unchanged, the figures regarding smaller companies are mostly projected to tick down.
Of most interest for BoJ policymakers may be whether the recent appreciation in the yen, combined with concerns of increased global protectionism, have taken their toll on the morale of Japanese businesses. If so, that could affect the outlook for investments in Japan, providing another reason for the Bank to refrain from signaling that it is considering an eventual exit from its ultra-loose policies anytime soon. Of course, the most important determinant of whether the BoJ will tilt hawkish in the near future will be the inflation outlook, which remains largely subdued.
Another noteworthy release out of Japan will be household spending data for February on Thursday, while Monday’s Nikkei manufacturing PMI for March and Wednesday’s services PMI for the same month might also attract attention.
Moving to China, Saturday’s official manufacturing and services PMI and Monday & Wednesday’s respective Caixin figures will be closely watched; the difference being that the Caixin readings focus on small and mid-size businesses, whereas the official figures move across the spectrum from large to small companies. February’s official manufacturing PMI came in at its weakest in over one-and-a-half years. The upcoming data could give insights on whether that was a Lunar New Year distortion or something more worrisome.
The eurozone’s flash inflation readings for March are scheduled for release on Wednesday at 0900 GMT. The headline Harmonised Index of Consumer Prices (HICP), that uses a common methodology across EU countries, is forecast to rise to 1.4% on an annualised basis from February’s 1.1% which marked the slowest pace of growth for the measure since late 2016. Voices within the ECB advising against premature tightening – given the inflation rate’s shortfall relative to the Bank’s target of close to but below 2% on a yearly basis – weighed on the common currency this past week. A data miss on Wednesday could further boost such concerns, resulting in a dovish tilt when the central bank meets next in late April. Core inflation, that excludes volatile food and energy items will also be watched, while February’s unemployment rate is also slated for release on Wednesday at the same time. The rate is projected to decline to 8.5% from the previous 8.6%, hitting its lowest since December 2008.
Other notable releases out of the eurozone are Markit’s manufacturing (Tuesday), services and composite (both due on Thursday) PMI’s, as well as February’s producer prices and retail sales data (Thursday). It should be mentioned that on the PMI front the releases will constitute the final readings rather than the initial estimates which tend to be more market-sensitive. Germany and France, the eurozone’s two largest economies, will also see the release of their respective PMI prints next week – a single print is made public in this case, rather than an initial and final estimate – while also of interest for the former will be retail sales, industrial orders and industrial output which are on the agenda in the week that follows as well.
Out of the UK, PMI figures for the manufacturing, construction, and services sectors are due on Tuesday, Wednesday and Thursday respectively. All three gauges are forecast to reflect a reduction, though still hold above the 50 threshold that separates growth from contraction in the corresponding sector. The services-related release is expected to gather the most attention, given the sector’s prominence in the UK economy, contributing around 80% of GDP.
US NFP report in the spotlight, with Canadian jobs data also due
Undoubtedly the most important release out of the US will be Friday’s jobs report for the month of March due on Friday at 1230 GMT. The labour market of the world’s largest economy is projected to have added 198k positions in March – down from 313k in February – while the unemployment rate is expected to tick down to 4.0%, to stand at its lowest since late 2000. The focus, however, is once again anticipated to be on wage growth, with an upbeat figure seen as having the capacity to stoke inflationary pressures, thus contributing towards a more aggressive tightening cycle by the Federal Reserve, something which could be seen as dollar-positive other things being equal. Stock and bond markets are expected to react accordingly as well. In this respect, average earnings are forecast to have grown by 2.7% y/y, at a higher pace relative to February’s 2.6%.
Other important releases out of the US will pertain to the Institute for Supply Management’s (ISM) manufacturing and non-manufacturing PMI’s for March scheduled for release on Monday and Wednesday respectively. Both measures are anticipated to ease following strong showings in February, though still remain comfortably above the 50 sectoral expansion/contraction level. February’s international trade data due on Thursday will also be of significance, especially in light of recent developments on the trade front. Beyond the aforementioned, other releases in next week’s US economic calendar include the ADP national employment report (Wednesday) on the number of positions added to the economy by the private sector. This is seen by some as a preamble to the non-farm payrolls report which covers both the public and private sectors.
Remaining within North America, Canada will see the release of its own jobs report for March on the same day and time as the US (Friday – 1230 GMT). A day earlier, February’s trade balance out of the country will be generating interest, while March’s Ivey PMI is also due on Friday.
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